FHA Mortgage: When Your Downpayment is a Gift

There has been so much fraud discovered in the FHA program allowing gift funds for downpayment that Lenders and borrowers are required to absolutely document every step of the gift transaction to prove it was legitimate.

Here's how it works: FHA allows the required downpayment to be a gift from someone who would logically be concerned about housing for the borrower. This means parents, siblings, other close family members. It can also mean employers in some circumstances, or even very close friends or roommates if the relationship can be verified.

Does "relationship be verified" sound like an invasion of privacy? It is often viewed that way, but the spirit of the HUD regulation is that unallowable donors be prevented at all costs from participating in the gift. Let's explore what HUD/FHA is actually trying to accomplish so we can make better decisions about how to document the gift funds.

It has been proven statistically that homeowners with zero funds in the transaction are more likely to default on the loan and suffer foreclosure. An FHA transaction is already set up to require very little down; often the 3-5% required is less than a security deposit on a rental unit.

If a Realtor or Builder or Property Seller were to give the Homebuyer the gift for the downpayment in order to make the deal go through, then all parties involved would benefit in some way from the transaction (commission, sale, new home), but the new Homeowner would come away with very little regard for the responsibility of ownership.

Buying and maintaining a home costs something. There is nothing essentially wrong with getting into a home for zero$ down, but you must be financially prepared to continue living there. If people who will profit from the deal are allowed to use some of their profit to leverage unqualified owners into homes, defaults and foreclosures will increase and the Housing Insurance fund will suffer.

OK, that's the reasoning behind the rules and regs. But HUD / FHA are there to promote Affordable Housing, so there must be allowances for legitimate circumstances. That is where the gift from family comes in. It is assumed that when a family member gives a gift of downpayment funds, they are aware of the financial circumstances of the buyer and are also willing and able to help out if need be.

There is even a provision for family members LENDING the buyer the downpayment, as long as the repayment terms are formally stated in writing and the payment terms are included in the buyers debt ratio for qualifying purposes.

Now it's time for documenting the transaction. The Lender is going to require (based on HUD / FHA regulations) that every step of the transaction be verified as happening exactly as represented. The loan file must have:

• A gift letter written and signed. It must say exactly what FHA rules call for, so wait until the Lender provides you with the right form.
• Proof that the donor has the $$ money to give and that it truly belongs to them. This can be a Verif from the Bank or a copy of a bank statement showing the funds in the account longer than just recently. (This is where you begin to prove that the Realtor, Builder, or Seller did NOT give the money to Mom and Dad to give to you).
• Trail the $$ funds as they move from Donor's account to your account or to the Title Company to hold in escrow. This is no time to play games. The check should be from the same account as above. If it is a certified or cashiers check, it will have the name of the Remitter on it. The actual transfer of the $$ is the most critical element of proof.
• Title Companies and Escrow Agents are required by Federal Law to verify that nothing sneaky happens at the closing table to undo any of the above items. The Realtor, Builder, or Seller can NOT pay Mom and Dad back at closing. Neither can you. No side deals.

It is up to you to make sure you don't commit Mortgage Fraud. There are abundant programs available now to assist Homebuyers with downpayment funds. When fraud gets out of control, those programs routinely get cut as a means to fix the problem. This hurts everyone, including you.

If you need assistance and you do not have a family member who can gift funds to you, look into City programs you might qualify for. Many communities have Development agencies who work closely with HUD to create programs for helping buyers get homes. Another source of downpayment funds could be a Non-Profit Agency approved by HUD / FHA to "gift" funds. Ask your lender or Realtor when you are Prequalifying for a loan.

Judi Moore authors Ask The Underwriter at 2rHouse.org and personally answers questions from readers about FHA mortgages and mortgage advice in general.

---

Mortgage Terms Explained

When you are hunting for a mortgage, you will find... Read More

High Risk Home Mortgage Lenders Online

Online high risk home mortgage lenders specialize in offering loans... Read More

The Real Truth About Those: Online Get a Better Loan Web Sites - 6 Things to Look For

You have seen the Commercials on TV go this or... Read More

Option One Mortgage Loans ? Getting an Option ARM or Option One Mortgage Loan

Have you heard about or been interested in finding out... Read More

Home Equity Line of Credit - Finding The Best Home Equity Lender

Borrowing against the value of your home using a revolving... Read More

Cardinal Principle of Homeowner Personal Loans ? It is a Solution for Any Sort of Financial Funding

You bought a house and you were promoted to the... Read More

When Not To Agree To A Home Equity Loan

Before you borrow money on your home's equity, think twice... Read More

The Debt Test: Are You Making Out a Mountain Out of Your Mortgage?

According to the Council of Mortgage Lenders, first-time buyers are... Read More

Cash Out Refinance Mortgage Loans ? Home Equity, 2nd Mortgage or Cash Out Refinance Loan

There are some definite benefits to doing a cash out... Read More

How To Find A Mortgage With Bad Credit

Shopping online for mortgages ought to be trouble free, even... Read More

Guide to Remortgages

Here is a useful guide to remortgages. What is a... Read More

VA Loans, A Gift from Uncle Sam

Uncle Sam has a gift for the men and women... Read More

Poor Credit Home Equity Loan Tips

A home equity loan can help repair your poor credit... Read More

How to Find a Direct Homeowner Loan

If you've been thinking about applying for a direct homeowner... Read More

Home Mortgage Loan Refinance ? Benefits To Refinancing Your House Online

Here are some of the benefits to doing your home... Read More

Home Buyers Face Decisions that Affect Their Long-Term Financial Picture

Taking the step for prospective home buyers.into home ownership is... Read More

Desperately Seeking Good Leads, The Adventure Driven Loan Officer

As loan officers, the word "lead" is by far one... Read More

Thinking About Refinancing Your Loan?

Refinancing your home or property is a big decision that... Read More

Home Loans: Where Do I Begin?

So you've finally decided you've had enough of paying rent... Read More

Sell Your Home and Invest at the Same Time

I continue to see the same For Sale signs in... Read More

Home Loans and Mortgages ? Time to Consolidate Loans?

Home equity loans and lines of credit are useful tools... Read More

Home Equity Loans - Are They Right For You?

The bills are out of control and you need a... Read More

Refinancing Your Home - How and Why?

Chances are you may need a little extra money to... Read More

Bad Credit Mortgage Refinance - Should I, Shouldnt I?

It is a common financial scenario across households in the... Read More

Home Mortgage Refinancing - Things to Consider When Looking to Get Cash Out on a Refinance

When you refinance your home mortgage, lenders often tempt you... Read More

Mortgage Refinancing Companies -- Choosing The Right One

Searching for a mortgage refinance company can be a daunting... Read More

Biweekly Mortgage

The biweekly mortgage has been around for years but with... Read More

Refinance Mortgage Loan ? Tips on Refinancing Your Home Mortgage

Refinancing your home mortgage can come with some great perks.... Read More

Home Buying ? What Can You Afford?

Okay, you've decided to buy a home and are trying... Read More

Debt Counseling ? Healing Touch for the Ailing Finances

The financial stories remain similar over the months and the... Read More

Bad Credit? First Time Buyer? You Can Still Get Approved For A Home Mortgage Loan

Do you have bad credit that you worry will stop... Read More

Mortgage: Rehabilitation Of Financial Helplessness

The term 'mortgage' is assumed really controversial by people when... Read More

Bankruptcy and Buying a Home

Filing bankruptcy is a stressful time in a person's life.... Read More